All efforts will be made to rebound economy: Manmohan Singh

All efforts will be made to rebound economy: Manmohan Singh

Admitting the economy was going through a difficult period, Prime Minister Manmohan Singh assured the industry that government will leave no stone unturned to ensure a rebound.

Singh attributed the rupee decline to widening Current Account Deficit and global factors and hoped that the steps taken by the Reserve Bank to arrest fall of domestic currency would be reversed with the easing of speculative pressure.

As regards the economy, he said though basic fundamentals are sound and stable, the growth rate in the current financial year was likely to be lower than 6.5 per cent estimated at the time of presentation of the Budget in February.

"We will leave no stone unturned to ensure that the economy rebounds. I appeal to each one of you not to be overcome by negative sentiment," Singh said while addressing the annual meeting of industry body Assocham.

"Let me begin by stating upfront that we, like most other countries, are going through a difficult period... It (industry) is looking to the government to bring the economy back to a higher growth path. This is a legitimate expectation and is also upper most in our mind," he said.

The Prime Minister assured the industry the government will remain pro-active in ensuring economic rebound.

"When things are going well, government should interfere as little as possible. When things go badly, as they seem to be at present, it is the responsibility of the government to become pro-active," Singh said.

All efforts will be made to rebound economy: Manmohan Singh

Noting that the most immediate cause of worry is the recent volatility in foreign exchange markets, Singh said, much of this was due to global markets reacting to the likelihood of a withdrawal of quantitative easing by the US Federal Reserve.

"Large volumes of funds were withdrawn from emerging markets and there was a depreciation in many emerging market countries... We too experienced a sharp depreciation in the rupee. In our case, it was perhaps exacerbated by the fact that our Current Account Deficit had expanded to 4.7 per cent of GDP in 2012-13," he said.

The government, Singh said, was committed to bringing the CAD under control by addressing both the demand side and the supply side of the problem, especially to contain demand for gold and petroleum products.

"Gold imports declined sharply in June, and I hope they will stay at normal levels from now on," he added.

On petroleum sector, he said, rupee depreciation has to some extent neutralise the calibrated steps to reduce under-recoveries of the oil marketing companies.

However, he added, "our policy of adjusting prices to progressively eliminate under recovery remains".

On the supply side, he hoped, depreciation of rupee would give push to export efforts and added, the government has been trying to remove the constraints in export of iron and other ores which saw a considerable decline over the last one year.

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Image: A boy sells roses while standing on a road divider during monsoon rains in Mumbai.Photographs: Danish Siddiqui/Reuters

All efforts will be made to rebound economy: Manmohan Singh

"Looking ahead, the rupee depreciation will help Indian industry to compete effectively with other countries, both in export markets and against their imports in our markets," Singh said.

Talking about the Reserve Bank's recent initiatives to arrest rupee decline, Singh said, these steps were not meant to signal increase in long term interest rates.

"They are designed to contain speculative pressure on the currency. Once these short term pressures have been contained, as I expect they will be, the RBI can even consider reversing these pressures," he said.

Singh further said that the government is on way to conclude a free trade pact with the European Union and hoped that industry would take advantage of the agreement to increase its competitiveness.

India has already signed free trade agreements with Korea, Asean and others.

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Image: A roadside vendor arranges bread for sale at a market in Kolkata.Photographs: Rupak De Chowdhuri/Reuters

All efforts will be made to rebound economy: Manmohan Singh

On CAD, Prime Minister said, the government and RBI will use all policy instruments available - fiscal, monetary and supply side interventions - to reduce it. "Ideally we should bring the CAD down to 2.5 per cent of GDP. It is not possible to do this in one year, but I expect that the current account deficit in 2013-14 will be much lower than the 4.7 per cent level recorded last year. It will decline further next year," Singh said.

Speaking about the economy, Singh said: "We have had one bad year. I assure you we will get out of it," adding that the fundamentals are sound and stable and medium prospects remain optimistic.

The Prime Minister further said that the government would stick to the fiscal consolidation road map and restrict the deficit to the target of 4.8 per cent of the GDP in the current financial year.

Image: Children stand next to a labourer working in Allahabad.Photographs: Jitendra Prakash/Reuters